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February 17 2020

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Spotlight 6 The Journal of Commerce | Februar y 17 2020 Containing cororavirus The container shipping industry was bracing for a deep decline in Chinese exports and expecting a rash of blank sailings aer China extended Lunar New Year celebrations to Feb. 9 in the areas hard- est hit by the 2019 novel coronavirus — Shanghai, Shenzhen, Ningbo, Xiamen, and Qingdao. Maritime analyst Alphaliner on Feb. 5 predicted first-quarter container volume would be down by more than 6 million TEU from pre-outbreak forecasts. Travel restrictions for workers in China and supply chain disruptions there due to the coronavirus are rais- ing fears among US importers and exporters that conditions in the trans-Pacific trade may worsen in the coming weeks. One shipper group is already urging container lines to extend so-called free time for container storage past Feb. 9. Alphaliner said on top of service reductions announced in the run up to Chinese New Year, carriers will implement additional void sailings in February in response to the extended holiday period, further reducing cargo volumes. The 2M Alliance will cancel two additional China–North Europe sailings in February, and the Ocean Alliance is believed to be blanking three sail- ings in February on the China–US West Coast trade. Beijing has extended the Chinese New Year holidays by a week, with factories scheduled to reopen on Feb. 10, but as the number of deaths and infections rises, that date might be extended still further. There are also severe travel restrictions in force across most of the country and limited cross-provincial movement, so even if the holiday ends this weekend as scheduled, the factories' migrant workforce will find it difficult to get to work. Airlines around the world are drastically reducing passenger flights to China as the virus threat grows, although the sea- sonally low freight volumes at present are likely to limit any immediate impact on shippers despite the cutbacks in belly cargo capacity. Low-sulfur leakage Carriers appear to be struggling to recover the cost of compliance with global low-sulfur fuel regulations, with analysts not seeing the level of rate increases needed in both the contract and spot markets to cover the higher operating costs. "The small increases are nothing to write home about," Xeneta CEO Patrik Berglund said in a recent analysis. "We have been tracking the effects of the new regulation in our data. Like market commentators have so far suggested, our rate data also does not show IMO 2020 having had any significant impact in the rate levels so far." Berglund said although the long-term contract market picked up in the Asia–Europe corridor, the rates were in line with levels seen in 2019 and 2018, prior to the implementation of IMO 2020."The carriers have yet to find the right formula for recouping the cost of more expensive fuel," he said. "They face real difficulties on commoditized routes, where pricing is critical to achieve market share, and the slight rises we see are mainly because of basic supply and demand, nothing more." The spot market picture looks similar. "Spot rates including the new bunker adjustment factors (BAF) elements have indeed increased coming into 2020, but even looking at the latest SCFI (Shanghai Containerized Freight Index) levels from Jan. 17, the problem is that the increases can basically be explained by the normal seasonality we would expect from the Chinese New Year effect," said Lars Jensen, CEO of Sea- Intelligence Maritime Consulting. "No separate BAF increase can be distinguished." Carriers estimate com - pliance with the IMO 2020 mandate will add as much as $15 billion to their annual fuel bill and have been adamant the costs will be passed on to customers. The Journal of Commerce Executive Editor, The Journal of Commerce and JOC Events: Chris Brooks 609 649 2181, Executive Editor, The Journal of Commerce and Mark Szakonyi 202 872 1234, Managing Editor: Benjamin Meyer 916 716 6272, Associate Managing Editor: Kevin Saville, 212 488 4282, Senior Editors: William B. 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